Horizontal equity is the principle that similarly situated persons should be treated similarly. While the principle is often invoked in tax policy debates, I demonstrate that the principle lacks a firm normative foundation. The paper presents a thought experiment to argue that neither an entitlement to pre-tax income, nor the presence of effort in generating pre-tax income, can provide the necessary foundation for such a principle. Then, I explore whether a concern for equal treatment and avoidi…
Read moreHorizontal equity is the principle that similarly situated persons should be treated similarly. While the principle is often invoked in tax policy debates, I demonstrate that the principle lacks a firm normative foundation. The paper presents a thought experiment to argue that neither an entitlement to pre-tax income, nor the presence of effort in generating pre-tax income, can provide the necessary foundation for such a principle. Then, I explore whether a concern for equal treatment and avoiding statistical discrimination can support horizontal equity even when there is no entitlement to pre-tax income. I show that tax discrimination can be objectionable, but because discrimination requires a relevant pre-tax benchmark, it follows that non-discrimination cannot support a general principle of horizontal equity without an entitlement to pre-tax income. In conclusion, despite the intuitive appeal of horizontal equity, I argue that its basis as a normative principle in tax policy is weak.
